Cable TV company faces fraud charges

NEW YORK -- The founder of bankrupt Adelphia Communications Corp. and two of his sons were charged Wednesday with conspiracy for allegedly looting the cable TV provider and using it as their "personal piggy bank."

Authorities said the defendants hid $2.3 billion in liabilities from investors.

In addition to the criminal charges, the Securities and Exchange Commission brought a lawsuit Wednesday in U.S. District Court, calling the case "one of the most extensive financial frauds ever to take place at a public company." It sought restitution and fines and to bar the defendants from ever heading a company.

Corporate prosecutions

The arrests represented the third major prosecution against corporate officers announced in Manhattan within the last six weeks. Criminal charges have been brought against former executives at Tyco International Ltd. in state court, and ImClone Systems Inc. in federal court.

The White House, stung by accusations it is too close to big business, seized on the Adelphia arrests as evidence it can crack down on corporate fraud.

"This government will investigate, will arrest and will prosecute corporate executives who break the law, and the Justice Department took action today," President Bush told reporters after meeting with Democratic lawmakers.

"Today was a day of action and a day of accomplishment in Washington, D.C.," Bush said.

Founder arrested

Adelphia founder and former chairman and CEO John Rigas, 77, was arrested on conspiracy charges along with Timothy Rigas, a former company chief financial officer, and Michael Rigas, another former company executive.

Also charged were James Brown, vice president for finance, and Michael Mulcahey, who supervised the flow of money in and out of the company.

The executives made false statements to their lenders and borrowed more than $2 billion from Adelphia without reporting it to the SEC, Deputy Attorney General Larry Thompson said in Washington.

He said the company falsified its number of cable television subscribers and generated fake management fees to conceal the alleged fraud.

Thompson also said the father took $13 million from the company to build a golf course.

Attorneys for the Rigases wouldn't comment.

On the most serious criminal charges, conviction could bring each of the defendants up to 30 years in prison and millions of dollars in fines.

Adelphia, the nation's sixth-largest cable company with 5.7 million subscribers in more than 30 states, filed for bankruptcy protection last month. The move followed months of turmoil after the company revealed billions of dollars in off-balance-sheet debt -- much of it owed by the founding Rigas family.

"The defendants intentionally submitted false information to lenders and made false statements to the public," Thompson told reporters. He said they "victimized Adelphia shareholders through a wide variety of quite frankly brazen thefts."

Stephen Cutler, director of the SEC's enforcement division, called it "an egregious multifaceted fraud on the company's investors."

In separate federal court papers, U.S. Postal Inspector Thomas F.X. Feeney said investigators believe the Rigases took money from Adelphia "on a massive scale, using the company as the Rigas family's personal piggy bank, at the expense of public investors and creditors."

Feeney said Adelphia was controlled by John Rigas and members of his family, who owned a majority of the company shares and controlled a majority of seats on the company's board of directors.

Feeney accused family members of using a "variety of deceptive and misleading accounting practices" and manipulating the books "to create the illusion that Adelphia's financial condition and performance were substantially more favorable than they in fact were."

The Rigases resigned their executive positions with the company in May. Later that month, the family agreed to turn over $1 billion in assets to help cover loans, to turn over $567 million in cash flow from other cable companies the family owns, and to pledge all stock held by the family as collateral. Adelphia estimates it is liable for $3.1 billion in family debts.

Adelphia said the Rigas family used the company's cash or assets to help it buy and operate the Buffalo Sabres NHL team, expand personal cable company holdings, acquire timberland and invest in a golf course, and that many of the deals weren't approved by the board. The company said it was investigating the family's use of company jet airplanes, condominiums and apartments.